From Hilltops Council – Councillor Greg Armstrong

What’s all this Ratio Stuff Mean?

The following information is found in pages 82 to 85 (Section G5 & H1-1) of the Hilltops Council Audited Financial Statements for 2020-2021. It provides a snapshot of a Councils actual performance against the NSW Governments financial benchmarks for Local Government.

1. Operating Performance Ratio

The operating performance ratio measures a council’s achievement in containing operating expenditure within operating income. An operating deficit occurs when total expenses are greater than total income (excluding all capital amounts). This includes a council’s day to day income and expenses.

Total expenses include depreciation, amortisation and impairment. An operating deficit is not a debt and is not reflected in the Borrowings of a Council (Section C3-3 Page 52).

In 2020-21, Hilltops Councils operating performance ratio results was minus 9.12%. The benchmark for this ratio is 0% or greater.

1. Own Source Revenue

Own source revenue ratio measures financial flexibility. It indicates the degree of reliance on external funding sources such as grants and contributions received by councils. A council has improved financial flexibility with a higher level of own source revenue. Own source revenue includes rates, annual charges and user fees and charges.

In 2020-21, Hilltops Councils own source revenue ratio was 49.43%. The benchmark for this ratio is 60% or greater.

2. Unrestricted Current Ratio

The unrestricted current ratio measures the adequacy of working capital and the ability of a council to satisfy its obligations in the short term. It does not include externally restricted activities such as water, sewer or specific grants and contributions.

In 2020-21, Hilltops Councils Unrestricted Current Ratio was 1.10. A ratio of less than 1.5 is considered unsatisfactory. An unrestricted ratio of 1.10 means that council has $1.10 in unrestricted current assets to meet each $1.00 of unrestricted current liabilities.

3. Debt Service Cover Ratio

This ratio measures the availability of operating cash to service debt including interest, principal and lease payments. NSW Councils generally have approximately twice as many financial assets as they do outstanding borrowings. A high ratio indicates the council has significant capacity to repay debt.

In 2020-21, Hilltops Councils debt service cover ratio was 4.69. The benchmark for this ratio is greater than 2.0.

4. Rates & Annual Charges Outstanding Ratio

This ratio assesses the impact of uncollected rates and annual charges on liquidity and the highlights the efficiency of councils’ debt recovery.

In 2020-21, Hilltops Councils outstanding rates and annual charges ratio was 14.04%. The benchmark for regional and rural areas for outstanding rates is less than 10%.

5. Cash Expense Cover Ratio

This ratio indicates the number of months a council can continue paying for its immediate expenses without additional cash inflow.

For 2019-20 councils’ cash expense cover ratio was 10.09 months. Benchmark for this ratio is greater than 3 months.

I trust that my highlighting of this information assists the community in gaining a better understanding of the financial position of Hilltops Council.

Have a great weekend, stay safe and well. Councillor Greg Armstrong

• Topics:

• Local Council
• Finance